Wayfair (NYSE: W), the gigantic e-commerce store that sells a zillion amount of furniture and home goods, is rocking the investment world. Flashback three weeks ago and COVID-19 pulled Wayfair down to the $25 mark. Let me stress the significance of this bearish decline, $25 equated to a 5 year low. Investors saw the opportunity to snap up cheap Wayfair shares, and they did.
Article Outline 1. Why is Wayfair surging? 2. A bit about Wayfair's history. 3. Is it too late to invest?
Why is Wayfair so hot right now?
To say Wayfair’s stock movements are crazy would be an understatement. Wayfair is up an astonishing 470% in two weeks. Wayfair currently trades at $134.11 (at the time of writing), which is higher than its pre-coronavirus price.
Some market insanity: $W Wayfair is an online furniture retailers with a less than convincing business model. Its stock price just went up >6x in 20 days. Note that the business is forecast to burn $500m this year…. pic.twitter.com/OSdmLYtxQT
— Alexander Stahel (@BurggrabenH) April 27, 2020
COVID-19 is causing an endless wave of furniture shops to close. Bankruptcy alarms are going off for some physical furniture stores. In turn, Wayfair essentially has a monopoly over the furniture industry. Wayfair’s monopoly is not stopping it from still offering 80% off discounts. Cheap prices + no competition + unprecedented demand + a digital website that can weather COVID-19 = a recipe for success.
However, it is not just a lack of competition that is driving Wayfair’s growth. Wayfair, being the innovative e-commerce store that it is, inbuilt Augmented Reality (AR) into their website. AR allows customers to place pieces of furniture into an empty room so you can see what it looks like. AR, alongside other features, allows W to provide us with a high-quality furniture experience while we bunker down.
Hence, it should come as no surprise that investors are rallying behind Wayfair. If Wayfair continues to surge at an unstoppable speed, then we should see the bullish momentum continue.
Niraj Shah and Steve Conine founded Wayfair back in 2002. Wayfair started by selling pet beds from Amazon. Shah and Conine stumbled across the idea of selling their own products on the site instead of Amazon’s. The first few suppliers turned out to be a disaster. However, their relentless focus soon saw Shah Conine open upwards of 25 online stores. The growth was exponential.
However, customers on certain websites were saying, “we wish you sold this and that.” Little did they know Shah and Conine did sell that product. But it was on another site. In turn, the customer requests gave birth to Wayfair.
Wayfair is now an icon in American business. Because when you think about online furniture, you think of Wayfair. Wayfair is synonymous with furniture.
Is Wayfair worth the investment?
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
The big questions is, should you jump on the Wayfair train? I always suggest that you never invest off the back of a bullish run and wait for a correction. However, in the case of Wayfair, there may not even be a correction soon (opinion not advice). Therefore, if COVID-19 continues in the long-term, Wayfair should be bullish (opinion not advice). Because there is little competition, leadership is superb, and Wayfair’s digital business model can weather a prolonged virus.
Every investor is itching to read about Wayfair’s quarterly earnings today. Analysts forecast a surge in revenue coupled with better-than-expected profit. Positive earnings would cause a buying frenzy. Negative earnings would cause a sell-off for the day. Possibly providing opportunists a nice long-term entry point (opinion not advice).
However, let’s say the reopening of the economy and relaxing of restrictions creates a bullish market. In this scenario, you would expect Wayfair’s unstoppable growth to come to a halt. Thus, allowing investors to enter at an excellent entry point.
Moreover, even if COVID-19 fizzles out and the economy miraculously recovers, W would still be a viable long term investment. (opinion not advice) Because we are becoming a digital economy. A digital economy will see more home goods sold online. Thus, Wayfair could be generating billions of dollars down the road.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Senior Manager of YIG.